The Mortgage Debt Relief Act – How it Helps Taxpayers Facing Foreclosure
With the sluggish condition of the US housing market, the taxpayers in the US have been the hardest hit among all. Moreover as 2011 is going to be called the year of tax hikes, there are people who are wary about their future financial position with the meager amount of income that they earn. The financial crunch that you may go through during the tough economic phase can easily be checked by the mortgage debt relief act. The consumers in the US are trapped in a cycle of mortgage debt, credit card debts and other personal loans but it seems that their tax worries top all their issues. People who have lost their homeownership rights through a forced foreclosure and who have modified their home loans can also get help from the debt relief act that was passed in 2007. Read on to know more on this act.
Some important highlights of the Mortgage Debt Relief Act
Are you interested in knowing more on the Mortgage Debt relief act? If answered yes, check out some important highlights of this particular act.
People who have gone through a forced foreclosure and who have gone through a loan modification can get help from the mortgage debt relief act.
You can exclude an amount that is up to $2 million of debt that has been already cancelled on your home mortgage loan by your lenders.
This particular relief is only available between the years 2007 and 2012.
You have to claim for tax relief by using the IRS form no 982.
What actually is cancellation of debt?
If you have borrowed money from a company, you’re liable to repay the entire amount in monthly installments of principal and interest rate. Now if your mortgage lender cancels a portion of your debt as you can’t repay the entire amount, you have to include the saved amount as income and this amount will be subject to income tax under the IRS. However, if you’re still liable to repay the amount, then you need not include the amount within your taxable income. The mortgage lender needs to report to to the homeowner and to the IRS through a 1099-C form and this entire process is known as cancellation of debt.
Will the saved money always be subject to tax?
The answer is No, as the saved money will not be included in the income tax only under some particular conditions. Here are some of those conditions.
Those debts that have been discharged through bankruptcy will not be included as your taxable income
If you can show that you were insolvent when your debt was cancelled by the mortgage lender, your income will not be subject to tax.
Qualified principal residence indebtedness is yet another exception to the mortgage debt relief act.
So, if you’re worrying about the taxes as you’ve gone through the foreclosure process, you can take help of the mortgage debt relief act. Pay off all your debts with ease so that you don’t need to go through any adverse financial situation.
